Millennial Money Saving For Retirement

Millennial Money – Why & How to Take the First Step in Saving for Retirement

You’re young, and you just started your first real career job. It feels invigorating and motivating to finally have hit your stride in the professional world and you have your whole career and life in front of you. Even though retirement feels like it is on the distant horizon, it is vital that you start planning early for your retirement.

Begin Investing with Ease

One of the best and most common methods of beginning your retirement nest egg is contributing to the 401K plan offered by your employer. These plans automatically deduct an amount (usually a percentage) from your paycheck that you specify and contribute it to your retirement account for you. Automated saving is certainly the most effective. Some plans even take your contribution out before income taxes. Very often, employers will also match your contribution.

These plans offer significant tax advantages. If you don’t participate, it is like leaving money on the table, particularly if your employer is providing “free” money in the form of a contribution match. Deducting an amount each paycheck can quickly add up over the years. No one else is going to save retirement money for you. It is up to you.

Enjoy Financial Independence

Naturally, there are worries that come to the surface when you are handing your hard-earned money to someone else to care for or invest for you. However, there are strict federal guidelines that must be followed by employers for setting up and running 401K plans according to the Employee Retirement Income Security Act of 1974.

One of the most significant stipulations is that if you change jobs, your 401K remains intact. The funds are then called a rollover and you can, at that time, transfer your 401K plan over to an individual retirement account (IRA). This means not only will you have full control over the account holding all of your contributions but you will also not pay taxes or penalties on the transfer. If you have several 401Ks from previous employers, you can combine all of those into one IRA account. This consolidation will make it much easier for you to manage investments and manage the overall retirement account. Even if your employer does not offer a 401K plan, you do have other options like establishing your own IRA account.

Make A Minimum Contribution

When you’re just starting out in your first job, you may have loans or other debt to pay off, and you want to buy cool stuff, too. That’s understandable. Usually, within the first month of your job, you are given the option to join a 401K. Work out your budget and determine how much you need to devote to bills, debt payoff and buying cool stuff, but contribute something to your 401K. Having a budget cannot be stressed enough. Two-thirds of Americans are not budgetarily conscious, so they do not have a clear idea of their actual cash flow. It’s critical to educate yourself and know your income, expenses and the categories where you could potentially trim spending to ensure you are making the proper contributions to your 401K to reach your future goals.

Usually, at the beginning of each calendar year, you have the ability to adjust your contribution. This can be a great opportunity to reevaluate the changes to your income or expenses in the last year and increase your 401k contribution accordingly. Always try to put the maximum amount in that fund without hampering your ability to pay off your other expenses.

Drop the Expectations

It can be a common misconception that in order to be in control of your own financial destiny and investments, you need to be an investment genius or financial professional. This is simply not true. In fact, most 401K plans offer tools to help you make investment decisions or choose an investment fund. These are called automated portfolios and they are a great choice when you’re just starting out. For example, you will be placed in a fund based on your retirement year, let’s say 2040, and based on how aggressively you want to invest—conservative, moderate, somewhat aggressive, really aggressive.

The more aggressive the investment, the higher the reward but, the higher the potential risk as well. The fund will allocate your money across several investments to maximize your investment for that target year. A general rule is that the closer you get to retirement, you want to be in a safer and more conservative fund. Automated choices are professional portfolios and they tend to do better than you just randomly picking stocks or other investments. 401K funds offer other advantages too. They don’t fluctuate as a stock fund does, they don’t shift with interest rates like a bond fund does, and 401K funds pay higher rates than if your money were sitting in a traditional bank savings account. If you have creditor issues, your 401K fund is protected.

Don’t Put It Off

Avoid having the “later” attitude. Set aside money now and don’t wait for later. When the 401K is automatically deducted from your check, it becomes much easier to save and invest. When the money is in your hands (or your bank account), it is more difficult to resist the temptation to spend it on other items.

It’s also important to not over contribute, either. You want to ensure you have done a proper budget and are contributing an amount that will satisfy your future goals while still ensuring you can financially support yourself and your current obligations. You don’t ever want to put yourself in the position of having a short cashflow and considering taking money back out of your 401K account. Though it is possible to withdraw money from your 401K, it also comes with very high heavy penalties and tax implications, so it is not recommended. 401Ks are for retirement and should not be utilized or depended on for other purposes.

Overcome Overwhelm

Don’t let all of this information keep you from investing in your 401K. Even if you can only invest a minimal amount, do it. Your company can provide background information and education. Start early to save your money for retirement. Use the power of compounded interest to your advantage. After all, holding an investment like a 401K over a long period is the best way to earn wealth for your retirement years. Start early!


About Signature Wealth

Signature Wealth Strategies is a wealth management practice serving families like yours with a hands-on, concierge level service. Our advisors help you confidently plan your financial future through comprehensive strategies and custom solutions. We believe that each client’s story is as unique as his or her signature, and their financial strategy should be too.